Last Thursday, Michael Roberts wrote:
There’s an ongoing spat between Joe Romm’s Climate Progress and Tim Habb’s and John Whitehead’s excellent and well-visited Env-Econ blog. The link here connects the spit balls....
But in this case, I wonder: macro and micro are different animals. So different, in fact, that many and perhaps most non-marco economists don’t understand it. For example, here is Eugene Fama, widely believed to be on the short list for the Nobel Prize, mistaking an accounting identity for a behavioral macro theory. And here is Tim Habb applauding the non-bailout of Lehman Bros., a policy decision that pushed the financial crisis and whole macro-economy over the brink. (Macroeconomists were wary, and for good reason, it turned out). These guys are great in their respective micro fields. But they seem way out of their element when it comes to macro.
A few reactions:
- Thanks Michael, these kinds of debates are always fun.
- It's Haab, not Habb. No biggee, happens all the time.
- "non-marco economists"...POLO!
- Probably not surprisingly, I take issue with this: "And here is Tim Habb applauding the non-bailout of Lehman Bros., a policy decision that pushed the financial crisis and whole macro-economy over the brink." That seems to imply--and maybe I'm reading too much into it--that a bailout of Lehman would have prevented this whole mess. No chance (that's my opinion). These dominos were falling with or without a bailout of Lehman. My more subtle (micro) point--and I hate subtlety--was that bailouts create moral hazard. That's it. And I still claim I'm right.
More from Roberts:
A good place for the government to spend is on public goods, the realm where environmental economics lives. Of course, it’s always a good idea for government to spend on public goods that pass a basic cost-benefit test. But now we’re in an unusual time when there are additional benefits to government spending, all else the same. This means we should work down the list, toward projects with some public benefits that might not exceed cost in normal times but are worthwhile today when we are at less-than-full employment and monetary policy seems to have its brick wall (unconvential monetary policy, like the Fed monetizing long-term debt nonwithstanding). This, it seems to me, is the way we maximize bang-for-the-buck in government spending.
I'm not following this argument (maybe it's my complete lack of understanding of Macro arguments). Does this mean that costs of projects change in times of macroeconomic difficulty? Maybe. And I'll concede that there might be some short-term employment benefits to targeted investments in public goods during times of less than full employment. But in the end, aren't we at best left with the same number of jobs we started with (under full employment), and a move towards likely suboptimal environmental policies? I know I'm dense, but to me it would be more fruitful to argue: 1) Put optimal environmental policy in place AND 2) put optimal stimulus policy in place. If 2 helps 1, YIPPEE! Bonus. I like that better than soggy pizza.
And finally from Roberts:
I have not done justice to the nuanced view in Rob Stavins' original quote. In the original quote Rob said "that is an illustration of the fact that it is not always best to try to address two challenges with what in the policy world we call a single policy instrument.” He was far from absolute. Tim Habb was a little less nuanced in defending Stavins' from Romm's attack. I probably should have quoted Stavins, not Habb in my post.
Nuance sucks.
Too subtle?
